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How Do They Compute My Monthly Payment?

IRS uses a very specific calculation to determine whether or not you have the ability to pay them anything on your old taxes, and if so, how much you should pay them every month:

    $ Income from all sources

 - $ Allowable  Expenses

   $ Monthly Cash  Flow

Monthly income from all sources minus your allowable monthly expenses equals your monthly net cash flow.

Your monthly net cash flow will be a positive or a negative number.

If your monthly net cash flow is a positive number, IRS will want you to make a monthly payment of that same amount to them to pay off your old tax balance.

If your monthly net cash flow is a negative number, then your allowable monthly expenses will be greater than your income, resulting in your inability to make monthly payments of any kind. At least until your income increases.

Note, though, that IRS uses the term "allowable" expenses.

Knowing that living expenses vary from coast to coast and household to household, IRS has developed its own set of standards for several expense categories. For example, housing and utility expenses are limited to a maximum amount for each county in each state based upon the number of people living in the household.

The highest allowable housing and utility expense in Orange County, California for a family of four or more is $2,329 while the maximum allowable housing and utility expense in Blaine County, Montana for the same size family is only $862.

If your housing and utility expense is less than the maximum allowable amount, you will be allowed your actual total expense to determine your allowable housing expense when computing your total household expenses.

However, if your housing and utility expense is more than the maximum allowable amount, you will be allowed only that maximum figure to determine your allowable housing expense when computing your total household expenses.

Unless you know all of the calculation rules, you will be at a distinct disadvantage if you deal with IRS on your own. They will use the system to their own advantage.

We, however, know the calculation rules thoroughly and use them to your advantage.

That's one of the reasons we're so good at this - we know the system extremely well and use it to get the best possible agreement with IRS for you.

 		  

How Long Will I Be Paying On This Thing?
Until the Twelfth of Never.
And that's a long, long time.
 

One of the most important questions we ask all of our clients is asked like this:

With your back to the wall and a gun to your head, and with IRS' itchy finger on the trigger, how much would you say is the absolute most you can pay IRS each month to pay off your prior years' taxes and never miss a payment?

This is a question you should ask yourself (and seriously think about before answering) whether you call us to help you or not.

The answer to this question will set an absolutely maximum monthly payment amount which we will not exceed in our negotiations with IRS for any particular client. We make sure our client understands that his or her answer to this question will give us the authority to agree to a monthly payment up to that amount. We prefer to stay well below this number, though, if we must commit our client to making any kind of a monthly payment to IRS.

For example, if a client tells us that her absolute top possible monthly payment is $350, we will try to stay in the $200 to $250 range when we talk to IRS. But that's only if we have to commit her to a monthly payment.

So let's say we've discussed your case with IRS and both sides agree on the exact details of your monthly income and expenses that result in a Positive Monthly Cash Flow amount of $217.

That $217 figure becomes the amount that IRS will require you to pay them every month to pay off your old tax debt.

Now we have to decide how the payments will be made.

As long as IRS gets their money on a consistent basis, they'll be happy.

Our concern is for you, our client. What is in your best interest and gives you maximum protection?

In most cases, we believe that the best workout in this situation is the best answer for both parties.

So here are the payment options:

Monthly Installment Agreement  The taxpayer (you) is responsible for mailing the $217 monthly payment to IRS.
Pros  
  • As long as you make your monthly payments (and file your future tax returns and pay all taxes due on those returns), IRS will not increase your monthly payment amount
 Cons  
  • You are always in danger of not mailing in the payment
  • This payment method results in the greatest number of defaults
Payroll Deduction  The taxpayer's employer is responsible for deducting the $217 from the employee's paycheck and sending the monthly payment to IRS.

We consider this payment option to offer the best protection for our clients.
Pros  
  • You have some control over the situation.
  • The money is taken out of your paycheck before you are paid
  • As long as you work for your employer, payments to IRS are fairly guaranteed
  • You don't have a chance to spend the $217 on other expenses
  • You will not forget to make the payment
 Cons  
  • Your employer may not enjoy the responsibility of managing additional monthly payroll deductions.
  • You may not like your friends at work knowing some of the details of your IRS troubles
Bank Draft  The taxpayer authorizes his bank to process a monthly draft on his/her account and the bank is responsible for sending the $217 monthly payment to IRS.
Pros  
  • You will not forget to make the payment
Cons  
  • Obviously, you run the risk of having insufficient funds in your account when the draft is processed
  • IRS will know where your bank account is just in case they decide to levy you again in the future (if you default on your payment agreement)

 

Since 1998 we have encountered less than a dozen existing monthly Installment Agreements that we could not reduce by at least 50%. Those clients were still happy when we were able to reduce their monthly payments, though, especially since the reductions were all over 35%.

 

Statute of Limitations on Collection

IRS has ten years to collect your taxes. Generally, that's ten years from the time you filed your tax return.

However, if you included any of those tax years in a bankruptcy or an Offer in Compromise, then they can add more time to your collection period.

If your expiration date is approaching (usually within 24 months), IRS will step into high gear and try to collect as much as they can before they have to stop.

IRS will often request or "require" you to sign a form 900 Waiver of Collection Statute of Limitations. As the title implies, the form gives IRS your permission to take as long as they want to collect the tax.

Our policy if firm regarding this form. We will never allow a client to sign a form 900.

Taxpayers gain no benefit from this form. It only helps IRS collect more money by extending their collection period.

So if IRS ever wants you to sign a form 900, run screaming from them and don't slow down until you can't see them anymore.

No matter what anyone says, you do not have to sign a form 900 under any circumstances.

Everything we do in our discussions and negotiations with IRS is done with your best interest in mind.

You are our client and you are paying us to represent you. Therefore, we do so vigorously.
   

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